How to Stop Anxiety From Sabotaging Your Investments

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The world is on the verge of a geopolitical paradigm shift while still reeling from a global pandemic. Traditional markets are more and more uncomfortable and the new ones seem to be in it freefall mode already. These are, as they say, interesting times.

“How will this affect my 401(k)?” may seem like a rude or silly question, but if you’re a regular small investor like me, anxiety is a valid answer – I don’t want to starve in retirement. So I searched the net for tips on how to deal with the fear of investing during good times and brought the following back to share with you.

Go ahead and panic (but don’t do anything about it)

The people say “don’t panic” all the time, but that’s unnecessary, often condescending advice. So go ahead and panic. Feel your feelings. It’s a scary and unsettling time, and downplaying your reactions is neither natural nor helpful.

But do not “panic to panicas Dr. Brad Klontz, Associate Professor of Practice in Financial Psychology and Behavioral Finance at Creighton University Heider College of Business said so. Don’t make financial moves based on your feelings (beyond buying yourself a few pints of ice cream).

Consider the bigger, longer-term picture

If you invest “correctly”, you keep an eye on the long term. Many rapidly changing situations threatening to spiral out of control make it difficult to see the bigger picture, but these are exactly the situations where it is most important to do so..

Remember: this is not the first time something like this has happened. And that won’t be the last time. But through world wars, depressions, recessions and social upheavals, the market has always rebounded from downturns. Stocks have averaged a return of around 11% a year since 1926. There has never been a period of 15 years where stocks lost money. If you had invested in stocks on only the four worst possible investing days over the past 50 years – I’m talking about the peak before each crash – you’d still be out way before. Provided you keep a cool head and don’t panic while selling.

Ignore all

Now is not the time to check how your 401(k) made. Things are going well. This is also not the time to stick to news sources or scroll fate. It’s okay to ignore all that.

Like Greg Davies, hb headbehavioralinance at Oxford Risk, he: “Avoid looking at the markets day to day as this will only increase your anxiety to no useful end… Inevitably there will be dramatic moves that are entirely unpredictable. Since you can’t control or predict them, you should also work to ignore them and exclude them from your long-term decisions.

Plan for change in the future

This Marketwatch advice is great advice if you can’t help but stress about your investments: write down how much you “lose” each day (whether you actually lose anything depends on your definition of the word; more details below), and ask yourself if your current strategy is too risky for your emotional health and/or your long-term goals. This will give you something active to do and information for the future. When the markets stabilize, take your loss notes to an adviser at your investment firm and discuss whether to change your risk level before the next inevitable slow-down.

Do not mourn the “loss of paper”

what money, anyway, man? When it comes to your retirement investments, those dollar signs represent stocks, bonds, and other financial instruments you own, so you only make or lose money when you sell them or buy something.

“The drop in valuations of these assets is not significant, only the value when you need to withdraw years into the future,” Davies says. “It’s better to sit and wait, than to exit when the markets are down.”

Don’t try to “buy the dip” (but don’t stop investing either)

“Buy the dip” is the idea that you should buy back investments after a crash because they are essentially “on sale”. It seems to make a lot of sense, but it’s not really a good strategy.

“Buying the dip is one of those things that works great on paper, but it doesn’t work well in real life,” says Callie Cox, senior investment strategist at Ally Invest. The problem with buying dips is twofold: first, trying to time your investments this way leads to not having enough money in the markets during “non-dip” periods. Second, you have no idea how serious things are and you might find yourself catch a falling knife. Instead, invest on a regular schedule with an eye on long-term gains. Keep calm, as they say, and carry on.

Talk to a professional (or two)

For help with anxiety caused by financial instability (or the fear of it), you should seek help from a mental health professional for the “anxiety” part and from a financial advisor for the “financial” part. These are difficult times, and we all need reassurance.

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